Child Care Subsidy Activity Test: Incentive or barrier to labour force participation?

Women in families with children under the age of 5 have the lowest levels of labour force participation amongst people of prime working age. Many of these women would like to re-engage with work but cite caring for children as the main barrier to entering the job market. The Activity Test limits access to subsidised early childhood education and care creating a chicken and egg dilemma for women looking to search for work. As a result, the Activity Test increases the costs to search for employment and creates an additional barrier for women looking to return to work or increase hours of work. In this report we explore the empirical and theoretical evidence on the decision to work of mothers of young children, and find that instead of acting as an incentive, the Activity Test is increasing the search costs for mothers of young children, and is a barrier to employment.